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Should you consider taking out an auto loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive financial calculators and tools as well as publishing original and objective content. This allows users to conduct research and compare information for free and help you make sound financial decisions. Bankrate has agreements with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies who pay us. This compensation may impact how and when products are featured on this website, for example such things as the order in which they appear within the listing categories, except where prohibited by law. Our mortgage and home equity products, as well as other products for home loans. But this compensation does affect the content we publish or the reviews you see on this site. We do not cover the entire universe of businesses or financial offerings that could be available to you. SHARE: Standret/Shutterstock

5 min read published March 02, 2023.

Written by Ben Luthi Written by Contributing writer Ben Luthi is a personal travel and finance writer who is passionate about helping others understand how to live their lives more completely. His work has been published in a variety of publications that include U.S. News & World Report, USA Today, Yahoo! Finance and numerous others. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to manage their finances with concise, well-studied facts that break down complicated topics into bite-sized pieces. The Bankrate promises

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If you have questions about money. Bankrate has the answers. Our experts have been helping you manage your money for over four decades. We continually strive to provide our readers with the professional guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate follows a strict standard of conduct, so you can rest assured that our content is truthful and accurate. Our award-winning editors and reporters create honest and accurate information to assist you in making the right financial decisions. The content created by our editorial staff is objective, factual and is not influenced by our advertisers. We’re transparent about the ways we’re able to bring quality information, competitive rates and useful tools for our customers by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products or services, or through you clicking certain links posted on our site. Therefore, this compensation may impact how, where and when products appear within listing categories in the event that they are not permitted by law. We also offer loan products, such as mortgages and home equity and other products for home loans. Other elements, such as our own website rules and whether the product is available within the area you reside in or is within your own personal credit score may also influence how and when products appear on this website. We strive to provide a wide range offers, Bankrate does not include details about every credit or financial products or services. The longer terms will mean lower monthly payments for your auto loan. They could be beneficial for the right buyer — but be prepared to pay more in the end. So, before you opt for an 84-month contract, understand the trade-offs and other options. What is an 84-month auto loan? They’re basically identical to any other auto loan. An auto loan will extend the period of repayment by seven years. The lender is able to amortize your loan over the course of this time to determine the amount you have to pay each month in principal and interest. For example, consider an auto loan with an 3.49 per cent interest. If you were to opt for a 60-month payment term the monthly amount would be $364. Extend that period to 84 months but your monthly installment would fall to $269. But that 60-month term will only cost you $1,825 in interest. Because there’s longer time for interest to stack up, an 84 month term is more expensive. You’ll end up paying $2,571 — almost $750 more. The reasons not to take the 84-month term of auto loans While a longer loan term will mean a lower monthly payment but it can be a problem in the future. Here are some possible pitfalls to avoid: More expensive While your monthly payment are lower when you have the length of the loan but the total interest will be greater. No matter how much or how little you finance, you’re going to pay more interest on an extended loan. This may not be enough to make an issue when you’re confronted with a lower monthly payments each month, but it’s money that could be put to use elsewhere. Not only that the 84-month auto loan rates tend to be higher due to the fact that longer-term loans are more risky for lenders. That’s even if it’s offered even at all. Depreciation On an average the new car could be able to lose more than 10 percent of its value within the first month after you leave the lot according to . It’s possible to lose 20 percent- or more — within the first year, and 60 percent by the fifth year. With a lower monthly payment, you have an increased risk . This means if you want to sell your car or it gets damaged, you’ll have to pay the extra cost out of pocket. Repair problems The older the car, the more costly the repairs will be. With an 84-month term is a higher chance that you’ll need to pay for repairs even though you’re still making an ongoing monthly payment. If you’re working with a tight budget and low reserve, it can put a big pressure on your finances. Expiring warranty new cars that offer long warranties, but the majority are at least three years, or 36,000 miles. If you have an 84-month loan it will be paying for your car long after the warranty expires. Beware of a loan term that exceeds the duration of your vehicle’s warranty. If you’re purchasing a there’s a good chance you won’t have any warranty issues to worry about. This makes depreciation expected and repair costs average more vital. So do not skimp on your research. Kelley Blue Book and Edmunds both offer estimates on the total cost to own which go beyond the normal repairs covered by warranties. Benefits of an 84-month car loan There isn’t all negatives and doom. There are some benefits of an 84-month loan that you must consider: Lower monthly payments. Seven years is a long time and you could borrow more money and still enjoy a fairly affordable monthly cost. If you’re on the budget tight the 84-month period could help keep month-to-month costs down. Lower debt-to-income ratio. If you take out an 84-month auto loan the monthly payment will be less than your income. Also, a lower rate can help you qualify to get future loans. Rates that are competitive. When interest rates are at a low, it can make sense to borrow funds for the longest time possible. You could use the money to cover your higher-interest loans. Make sure you know that the 84-month auto loans will have higher rates than automobile loans with shorter terms. When to consider an car loan There are times when you’re on a budget or do not have plenty of time to negotiate with a dealer. If you are limited in the options available, a long-term auto loan might be the best option. A longer term is the only way to fit the monthly installments within your budget. There’s no penalty in the event that you pay off your auto loan is paid off in the early. The length of the term enables you to afford a better, more reliable vehicle. Your car has a long warranty, minimizing the overall cost of repairs. You can be eligible for a low-interest rate, and you’ll want to invest the difference to earn an increase in the value of your money. Other auto loan options You can use an auto loan to understand what a long-term contract costs. If you’re unsure if whether a longer period is suitable for you, even with the best 84-month option, there are alternatives to consider: wait and save. If you’re stuck with an exact model but are unable to pay for it with a long-term look into waiting until you’ve accumulated enough cash for a higher down cost. Make use of auto loan to find out how much it can cut your monthly installment. Opt for a cheaper car. If you don’t have time to save for a larger down payment, think about changing your priorities to a lower-cost vehicle that can be finance it for a shorter time. Make room in your budget. If you haven’t done so, take a look at your earnings and expenses for the last couple of months and see whether there are areas in which you can cut back to allow for the higher monthly payments. Lease instead of buying. have shorter times than auto loans generally about three years according to . Despite their shorter terms however, they are able to pay lower monthly payments due to the vehicle’s depreciation and not the price it was sold for. How to choose the right auto loan term length Consider the amount you’re financing, the interest rate as well as your financial budget. It’s not unusual for car buyers to choose longer terms on their auto loans However, it’s not a good idea to give in to the pressure of sales. The shorter your auto loan time frame, the more advantageous. Not only does it ensure that you pay lower interest, but it also results in paying off the debt sooner. This means that you’ll have additional cash each month to put toward other obligations and expenses. If you won’t be able to afford a higher monthly payment, you can choose to take an extended repayment period in the beginning and later as your budget permits. If your lender doesn’t have a prepayment charge, you can also take care to pay back your loan earlier and save on interest. As you consider term lengths take your current financial situation as well as your long-term goals and needs in your mind. There’s no auto loan length that is ideal for everyone. Understanding your finances will help you find the best path forward. The bottom line Although you’ll pay lower monthly installments with an 84-month car loan, you’ll ultimately pay more interest. You also risk being liable for more on the loan than the vehicle is worth and could incur massive repair costs. When deciding on a longer auto loan term, consider a shorter term to save money in the long run. Find out more

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Written by a contributing writer Ben Luthi is a personal travel and finance writer who is passionate about helping others learn how to live their lives more completely. His writing has been featured in several publications, including U.S. News & World Report, USA Today, Yahoo! Finance and many more. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing clear, well-researched facts that break down complicated topics into digestible pieces.

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